By Colin R. O'Leary
The Coronavirus Pandemic of 2020 was a big surprise for almost everyone. Never before have entire industries been forced to shut down all at once. As we speak, America is still mostly shut down for business. Schools across the nation are still shuttered. The real estate market is being significantly impacted because of all of this. So how will the Coronavirus Pandemic affect the real estate in 2020? Let's take a look at a few ways the real estate industry may be impacted.
1. Consolidation: Real estate companies, especially brokerages, operate on slim margins even in the best of times. The cost of doing business gets higher ever year with operating expenses. Agents are demanding higher splits. It's becoming more and more difficult for companies to succeed in today's marketplace even without a pandemic. The Coronavirus Pandemic will likely force the closure or consolidation of many small and mid-size brokerages who will be unable to weather the current financial storm. Larger firms with more financially stable will be forced to re-evaluate business operations. The drop in revenue could lead to larger and more financially stable companies to consolidate by cutting staff, slashing expenses, and closing offices.
2. Technological Advances: Technological advances in real estate will likely speed up because of the Coronavirus Pandemic. Virtual tools such as Zoom and Docusign have been around for years, but are now in much more demand. Real estate is one industry that hasn't been completely disrupted by technology. Firms like Redfin and Purplebricks distrupt the industry but have made little impact. Why? because its impossible to replace the human factor that traditional brokerages offer the market no matter how good the technology that's offered to buyers and sellers. Still, expect technology that enables the real estate industry to do business more remotely to improve. Real estate closings are already happening virtually here in NYC right now. Brokerage and client meetings done virtually will become more common. Expect to see more real estate activities like closings happen virtually in the future even after the pandemic becomes a distant memory.
3. Home Values Shift: Home values will be affected by the Coronavirus Pandemic. Only time will tell how much. Home values could rise or fall faster in certain places because of the pandemic. Home values in places that were buyer's markets before the pandemic could be further depressed. Home values in places that were seller's markets before the pandemic could potentially rise in value because of the lack of new homes coming onto the market. There will inevitably be sellers who decide to hold off from listing their homes this spring. This could lead to a supply issue that favors sellers in certain areas.
4. Rural Markets Boom? Could there be a potential boom in rural markets? City dwellers might begin to rethink their current living situations. This could lead to many people purchasing homes in rural areas, whether as a primary residence or a vacation home. There will always be people who prefer to live in cities, but as workers become more remote because of technological advances some may rethink their living situation altogether. The pandemic may lead to more homes sold in rural and suburban areas.
5. Foreclosures Rise: Unfortunately due to the pandemic, millions of people will lose unemployment. How long the economy takes to rebound is unknown. Many homeowners will be affected. Fortunately, most states and banks have already agreed to a 90-day Forbearance for borrowers who are affected by the Coronavirus Pandemic. This doesn't mean you can stop paying your mortgage, rather that the terms of the loan will be extended. Still, expect the number of foreclosed homes to rise in 2020. Homeowners who tapped out the equity in their homes by doing things like "cash-out" refinancing or a reverse mortgage will be at most risk. Homeowners who lose employment because of no fault of their own may be able to avoid foreclosure by doing a short-sale. A short sale is when the bank allows homeowners (with no equity) to sell the property for less than what is due on the note or mortgage.